All Forum Posts by: Nate Herndon

Hey Andre, I utilize delayed financing every so often with my clients. My Milwaukee clients aren't using that method, but as you know it can help with closing deals quickly. We typically don't have trouble with getting 80% of your purchase reimbursed to you as long as the DSCR hits 1.00+.

Here's a quick breakdown of the eligible loan amounts based on an all-cash investment strategy:

• 0-6 Months (Delayed Purchase, no Rehab completed) - up to 80% of purchase price
• 6+ Months (Cash-Out Refinance, no Rehab completed) - up to 75% of appraised value
• 0-3 Months (Cash-out refi, Rehab completed) - 75% of appraised value [good rates]
• 3-6 Months (Cash-out refi, Rehab completed) - 75% of appraised value [best rates]

Happy to discuss your specific deal whenever you've got time to review. Happy hunting out there!

Happy to assist @Tyler Carter. I've even had the chance to secure cash-out refinances between 6.00-6.50% lately - keep an eye on the 5-year treasury, as 720+ credit and $100k+ properties will be eligible for rates that are about 2.5% over that daily treasury rate. Great discussion you generated here for those looking to learn more about cash-out refinances.

I would check with your local bank for opportunities to get a line of credit - I wish those things existed in the private lending world, but they are non-existent for the time being. You may also be able to connect with a local hard money lender to fund your rehab.

For my clients who have exhausted those options, I recommend pursuing a refinance-rehab loan that could give you some cash-out to get started, while also funding your whole budget to be held in escrow. With say $20k in cash-out, and $65k held in escrow, you could recycle that $20k three times over by completing work, ordering a draw from your rehab loan, and receive those reimbursed funds for completed work in 3-5 business days.

I walk through the whole BRRRR process with clients via purchase-rehab (or refi-rehab) loans, and then DSCR refinances once work is complete. The minimum loan amount on both of those loan programs is $50,000. 

You would want to avoid a DSCR refinance right now for cash-out as those loan programs will carry prepayment penalties - refinancing post-rehab to get your equity back out of the property (based on improved value) would leave you paying an extra prepay penalty. So, a line of credit or bridge/rehab loan will best serve your BRRRR goals, as those do not carry prepayment penalties or minimum hold times.

Hi @Tyler Carter - 

Program guidelines can differ, and though many programs are similar in what they offer, knowing your specific implications in a deal can help pinpoint the right program. Here are a few things that might go into my consideration for one program over another when selecting the right program for a client.

There are a lot of pitfalls with each unique loan program out there, so it's all about threading the needle with the "most right" selection the first time around.

• Is the property leased? If yes, is the rent that is received greater than market rents? If yes, do I need extra credit for the market rents to meet DSCR requirements?

There are programs that will give credit for 110% of market rents when the actual lease is higher than the appraised market rent value.

• What DSCR ratio do I need to hit?

Some programs require a break-even 1.00 DSCR, while others need a 1.10 or 1.15. Even still, rates may be lower if the cash-flow exceeds 1.40+. Some programs will give 65% LTV for a 0.75+ DSCR (aka negative cash-flow).

• What is the property value and loan amount?

Some programs require a $100k value (or loan amount) minimum, so I need to stay flexible with a program that offers $75k minimum value and $50k minimum loan amounts.

• What is the property seasoning?

Properties need to be seasoned with most programs in order to take cash-out at the appraised value, with the quickest options requiring only 90-day seasoning to receive a cash-out.

• What is the guarantor's credit score?

This will determine the available rate and leverage that a borrower can get. 

• Does the borrower have cash reserves, or do I need to use a program that gives credit for the cash-out funds towards the reserve requirement?

If a borrower is low on cash reserves, but still needs to show 6-9 months of PITI in the bank, a program that gives you credit for your cash-out funds towards the asset requirement is extremely helpful.

 Hi @Dawit Wo - lots of good questions. Let's plan a phone call to review the following:

• Does the 6 month seasoning start from purchase date or COE? My rural property was bank owner, but since the PO was married when he signed the deed in lieu they needed to go back and get his ex-wife to sign off.

Seasoning will begin on whatever date the deed is transferred into your name or your entity's name.

• If the property is currently in my name can I still close in my LLC?

Yes, the chain of title remains intact since you are the owner of the LLC.

• How much will the appraisal cost and how do I get started?

Appraisals these days seem to be ranging anywhere from $600-$800 for a 1004 +1007 (market rent) report. We will jump on a call to review the deal and your options together before requesting an application.

• Are drive by appraisals a thing, if so, when are they used? Im in CA but property is in OK.

They are a thing, but only for bridge/rehab loans. 30-year fixed DSCR loans will require a full Fannie Mae Form 1004 report.

Hypothetical:

• On the 800k property. What's the minimum the seller would have to carry for me to qualify for the 10% equity: would 50k carry be enough?

The max combined LTV is 90%, so if the seller carries $50k (6.25% LTV) and the lender finances their program max of 75% LTV, you would stay under the 90% threshold at 81.25% LTV. However, your investment requirement would be $150k. Seller would need to carry 15% of $800k ($120k) to make your requirement 10%. Seller carry of 15% + lender financing of 75% = 90% CLTV.

• Also, if the property appraises for 900k, would the 100k built in equity satisfy the equity requirement or does it have to be new money?

It would not - your financing will be based on the lesser of the appraised value or purchase price.

@Dawit Wo

• As for the 6-month seasoning, do the rules change if I've had the property longer?
For the best interest rate, we would need the property to be occupied at that point. However, we do have options that allow for vacant refinances regardless of seasoning.

• Can I use two 50k properties to qualify? If so, would they have to be in the same state?
We would not be able to finance a $50k property on a DSCR loan - that would need to go the route of a bridge loan and look at refinancing once the value-add was complete.

We can work on properties in multiple states at once, though - that's no issue.

• A property is 800k and seller is willing to carry 400k at 0% in second position. Could I put down 100k to get a 400k DSCR if the rent is 5k/mo since it's enough to service both debts?
Unique scenario, but I have something that could get you there. You are permitted up to 90% combined-LTV between lender- and seller-financing. The rate is higher, but if you are only financing 50% or less of the purchase, that might be less impactful with a 0% seller rate. You would still be required to invest 10% equity into the deal here, so your $100k investment satisfies that need. The income would only need to cover the lender's loan via DSCR, not the lender- and seller-financing combined.

Quote from @Dawit Wo:

Quote from @Nate Herndon:

@Dawit Wo - looks like a decent deal on fees - I'd be able to accommodate the following for a DSCR loan at a 7.50%. A bird in the hand is worth two in the bush, that's always true. Clear to close is a big deal. Appraisal transfers are pretty easy with the program I've got in mind.

Your terms are better but I signed today. I was just tired of waiting. What's the lowest loan amount you can do and how long do they typically take it? Also, is it harder if its a vacant rural property?

That’s great, congrats! Small differences in interest rate isn’t wildly important on a lower loan amount.

Minimum property value is $75,000 and minimum loan amount is $50,000. A rural-marked appraisal will be capped at 65% LTV; vacant is OK on purchases and refinances with less than 6-month seasoning. We will use appraised market rents in both of those scenarios.

Typical target closing timeline is four weeks from appraisal payment. 10-14 days for upfront processing and all third-party items to be returned like appraisal, title, and insurance; 10-14 days allocated for underwriting and closing. 

@Dawit Wo - looks like a decent deal on fees - I'd be able to accommodate the following for a DSCR loan at a 7.50%. A bird in the hand is worth two in the bush, that's always true. Clear to close is a big deal. Appraisal transfers are pretty easy with the program I've got in mind.

Hey David, here's an example of where my best DSCR program would be at today. Couple of items are dependent on the total loan amount, DSCR, etc.

720+ FICO is top tier pricing. This program bases their rates on the daily 5-year treasury rate.

 Hi @Connor Hibbs - we have some solutions that lend on 65% LTC/LTV for rural on long-term rentals. Another option gives up to 75-80% LTC/LTV upon an enhanced review of the property.

Happy to explore those together.